COLUMBUS, Ind. — Demand for Class 8 tractors has remained resilient, but the latest ACT Research notes that there is softening in big fleet profitability.
Expectations, as published in the latest release of the North American Commercial Vehicle OUTLOOK, are that current strong production and sales in the face of weak freight creation will exhaust pent-up demand in 2023, as lower freight rates, higher equipment and borrowing costs, improved equipment availability and shrinking profits put downward pressure on demand overall, an ACT news release notes.
“Even as the Class 8 market comes under increasing pressure, van trailer demand continues to enjoy secular support from the move to ‘power-only brokerage,’ which has big fleets and logistics companies looking to boost trailer to tractor ratios to bolster spot market productivity,” said Kenny Vieth, ACT’s president and senior analyst.
Vieth added: “We’ve spent most of the past year warning about a potential recession. Admittedly, the economy has proven more resilient than initially envisioned. That said, we think broader economic conditions are softening, and we reiterate our cautious view, including our forecasts for slowing 2H’23 production rates. We continue to expect a shallow recession to materialize, centered on mid-year.”
ACT notes in its report that a critical factor in forecasting, especially as 2024 approaches, is when do demand headwinds, lower freight volumes and rates, plus higher borrowing costs, compress carrier profits sufficiently to kill the peak-cycle activity?
One of the critical heavy vehicle demand components, carrier profitability, is increasingly under pressure, according to ACT.
In Q1, the public carriers’ profits took a hit, falling to levels last seen in early 2020. While some of the decline was seasonal, core carrier margins were down 250 basis points year-over-year, and 300 basis points below the cycle’s Q4’21 peak. With contract rates expected to deteriorate through 2023, profit margins should continue to narrow.
Vieth concluded, “Aside from near-term Class 8 demand timing, the immediate wildcard in our forecast remains the debt ceiling. While the Fed plays a major role in determining the interest rates businesses and individuals pay to borrow money, the coming debt ceiling battle may serve to pause business investment, unnerve investors, and push interest rates even higher, which could induce a deeper recession sooner.”
The Trucker News Staff produces engaging content for not only TheTrucker.com, but also The Trucker Newspaper, which has been serving the trucking industry for more than 30 years. With a focus on drivers, the Trucker News Staff aims to provide relevant, objective content pertaining to the trucking segment of the transportation industry. The Trucker News Staff is based in Little Rock, Arkansas.
Why planet are these people on? Shallow recession? My income is half what it was this time last year. Freight rates continue to fall. Diesel has barely moved down by comparison. What I can’t figure out is why employers are keeping anyone around. Nothing to ship why keep people employed? The sheet is about to hit the proverbial fan. Layoffs, truck repos, looming driver shortage thanks to everyone and their brother getting out of it for various reasons, EPA mandates, … all spell disaster.
We’re in a depression folks and nothing but lies and printing money is keeping it all going. For now. This is why election integrity matters! You can thank the climate change cultists for most of this. Think you’re winning in 2024? No way. They won’t let it happen.
Expect things to only get worse.